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Brexit – Theresa May’s speech on Our Future Partnership

carolineheath2 March 2018No comments

In a speech today at Mansion House, the Prime Minister set out the Government’s vision for the future partnership the UK is seeking with the EU following Brexit.

The five tests

First, the Prime Minister set out her five tests for the agreement on the future partnership with the EU, which were that it should:

Respect the result of the referendum;

Be an enduring agreement;

Protect people’s jobs and security;

Deliver an outcome consistent with the kind of country we want to be;

Strengthen our Union of nations and bring our country back together.

Why existing trading models are not an option

She acknowledged that existing models for co-operation between the EU and a third country would not pass these tests, and therefore would not work for the UK or the EU.

For example, under the Norway model, the UK would stay in the single market, but would have to implement new EU legislation automatically and in its entirety – and it would also mean continued free movement.

Other possibilities include negotiating a free trade agreement similar to the one Canada has recently negotiated with the EU, or trading on World Trade Organisation terms.

But these options would mean a significant reduction in access to each other’s markets compared to what is currently enjoyed.

Instead the UK is looking to agree the broadest and deepest possible agreement – covering more sectors and co-operating more fully than any FTA anywhere in the world today.

“We need to strike a new balance. But we will not accept the rights of Canada and the obligations of Norway,” she said.

Five foundations for the future trading relationship

To realise this ambition she called for five foundations that must underpin the trading relationship:

Reciprocal binding commitments to ensure fair and open competition;

A completely independent arbitration mechanism;

Ongoing dialogue with the EU, in particular between our regulators;

An arrangement for data protection that goes beyond an adequacy agreement;

Maintaining the links between our people.

Goods

On goods, a fundamental principle is that the UK-EU border should be as frictionless as possible, without any tariffs or quotas. With this in mind the UK is seeking a comprehensive system of mutual recognition to ensure that, as is the current situation, products only need to undergo one series of approvals in one country.

The Prime Minister also set out two potential options for the future customs relationship with the EU: a customs partnership and a highly streamlined customs arrangement, as well as some specific provisions for the unique situation in Northern Ireland.

Customs partnership

Under this proposal, at the border the UK would mirror the EU’s requirements for imports from the rest of the world, applying the same tariffs and the same rules of origin as the EU for those goods arriving in the UK and intended for the EU. By following this approach, all goods entering the EU via the UK pay the right EU duties, removing the need for customs processes at the UK-EU border.

But, importantly, a mechanism could be put in place so that the UK would also be able to apply its own tariffs and trade policy for goods intended for the UK market. This approach would require the means to ensure that both sides can trust the system and a robust enforcement mechanism.

Streamlined customs arrangements

Option two would be a highly streamlined customs arrangement, where the UK and EU would jointly agree to implement a range of measures to minimise frictions to trade, together with specific provisions for Northern Ireland.

Firstly, measures to ensure the requirements for moving goods across borders are as simple as possible.

This would involve continuing to waive the requirement for entry and exit declarations for goods moving between the UK and the EU.

In addition, goods moving between the UK and the rest of the world should be allowed to travel through the EU without paying EU duties and vice versa.

Second, measures to reduce the risk of delays at ports and airports. For example, recognising each other’s “trusted traders” schemes and drawing on the most advanced IT solutions so that vehicles do not need to stop at the border.

Third, both side should continue their cooperation to mitigate customs duty and security risks.

And fourth, measures to reduce the cost and burden of complying with customs administrative requirements, including by maximising the use of automation.

Further specific measures were proposed to recognise the unique circumstances in Northern Ireland, and the shared commitments to avoiding a hard border.

Services

On services, the UK is seeking to establish a broader agreement than ever before. Whilst recognising that certain aspects of trade in services are intrinsically linked to the single market, and therefore future market access in these areas would need to be different, Theresa May said that new barriers should only be introduced where absolutely necessary.

The UK wants to limit the number of barriers that could prevent UK firms from setting up in the EU and vice versa. It wants to agree an appropriate labour mobility framework that enables UK businesses and self-employed professionals to travel to the EU to provide services to clients in person and that allows UK businesses to provide services to the EU over the phone or the internet. The same arrangements would apply for EU firms providing services to the UK.

Two areas that have never been covered in free trade agreements in any meaningful way before are financial services and broadcasting. Theresa May recognised that the UK cannot have the rights of membership of the single market, such as ‘passporting’ in financial services and ‘country of origin’ in broadcasting. But emphasised that future arrangements should not be bound by existing precedent.

The Chancellor will be setting out next week how financial services can be part of a deep and comprehensive partnership with the EU.

The negotiations

The Prime Minister acknowledged that there would be ups and downs in the months of negotiations ahead, “As in any negotiation, no-one will get everything they want.”

The PM concluded by saying: ‘My message to our friends in Europe is clear. We know what we want. We understand your principles. We have a shared interest in getting this right. Let’s get on with it.’

Reaction from the EU

The EU’s chief Brexit negotiator Michel Barnier welcomed the speech, saying it provided “clarity” about the UK leaving the single market and customs union and a “recognition” that trade-offs will inform future talks on a deal.

But the European Parliament’s Brexit co-ordinator Guy Verhofstadt was less impressed.

He said: “Theresa May needed to move beyond vague aspirations, we can only hope that serious proposals have been put in the post.